2004 (3) TMI 322 - AT - Income Tax

Capital Gains - expenditure towards repairs - Whether the assessee is entitled to full exemption u/s 54 despite being a co-owner - HELD THAT - We are of the view that the assessee can be treated as purchaser of the property in terms of section 54. Our view is further fortified by the Hon'ble Supreme Court judgment in the case of Podar Cement (P.) Ltd. 1997 (5) TMI 2 - SUPREME COURT for the proposition that the concept of constructive ownership to be applied to income-tax proceedings. The issue before Hon'ble Supreme Court was of depreciation. Nevertheless, it lays down a general proposition of law that in income-tax proceedings the concept of constructive ownership can be applied considering the facts of the case. We are of the view that the facts of the present case conform to be seen from the gloss of the Hon'ble Supreme Court judgment in the case of Podar Cement (P.) Ltd., which also helps the case of the assessee. Thus, we hold that the assessee is purchaser of the flat and the entire amount spent by her has to be considered towards the purchase price paid by her for the new flat entitled to be computed while allowing deduction u/s 54. Revenue appeal is dismissed. Allowability of Expenditure on Repairs u/s 54 - Lower authorities have not disputed the fact that the repairs etc., undertaken by the assessee were genuine. The assessee would not have been able to carry out necessary repairs unless the conveyance was executed. The same will obviously mention the figure of agreed purchase price between vendor and assessee. Therefore, this fact cannot be held against the assessee. This issue has been considered by the Tribunal in Gulshanbanoo R. Mukhi's case 2002 (1) TMI 1296 - ITAT MUMBAI . Following the same, we hold that the assessee is entitled to deduction of Rs. 40 lakhs towards purchase of the flat while working out the chargeable capital gains u/s 54. Assessee's cross objection is allowed.

Summary

Issues Involved:
1. Whether the assessee is entitled to full exemption u/s 54 despite being a co-owner.
2. Whether the expenditure of Rs. 40 lakhs towards repairs is allowable u/s 54.

Summary:

Issue 1: Entitlement to Full Exemption u/s 54

The revenue contended that the assessee was only a co-owner of the newly acquired property and not the full owner, thus not entitled to full exemption u/s 54. The Assessing Officer (AO) found that the property was purchased by the assessee along with her parents, making her only a 1/3rd purchaser. The assessee argued that she was the sole purchaser, having paid the entire consideration from her bank account, and included her parents' names for convenience to avoid legal complications. The CIT (Appeals) accepted the assessee's claim, noting that the entire payment was made by the assessee and her parents had no right, title, or interest in the property, as evidenced by their affidavits. The Tribunal upheld the CIT(A)'s decision, emphasizing that the term 'purchase' should be understood in common parlance and that the assessee had paid the entire consideration and expenses. The Tribunal also referred to section 45 of the Transfer of Property Act and the Supreme Court judgment in CIT v. T.N. Aravinda Reddy, concluding that the assessee was the purchaser of the property and entitled to full exemption u/s 54.

Issue 2: Allowability of Expenditure on Repairs u/s 54

The assessee's cross objection challenged the disallowance of Rs. 40 lakhs spent on repairs to make the new flat habitable. The assessee argued that the expenditure should be considered part of the cost of the new flat u/s 54. The Tribunal referred to its earlier judgment in Mrs. Gulshanbanoo R. Mukhi v. Joint CIT, which held that necessary repairs to make a residential house habitable constitute part of the cost of the new asset. The Tribunal noted that the lower authorities did not dispute the genuineness of the repairs and that the assessee could not have carried out the repairs without executing the conveyance. Following the precedent, the Tribunal allowed the deduction of Rs. 40 lakhs towards the purchase of the flat while computing the chargeable capital gains u/s 54.

Conclusion:

The Tribunal dismissed the revenue's appeal and allowed the assessee's cross objection, granting full exemption u/s 54 and allowing the deduction of Rs. 40 lakhs spent on repairs.